So is President George W. Bush, as far as Murray is concerned. A registered independent voter who has voted for both Democrats and Republicans in past presidential elections, Murray says she plans to stick with the Republican in November. “I think Bush is doing a good job,” says Murray. “We are in better shape under him, with the economy picking up.”
Six months ago, Murray might have given a different answer. During the summer, work was so scarce at her company that Murray and many of her co-workers were asked to take vacation time. But those days are behind her–and most Americans. Last month, the Commerce Department reported that the U.S. economy, measured by its gross domestic product, grew at an 8.2 percent rate in the third quarter, the fastest pace in two decades. This week, the Institute for Supply Management said manufacturing activity in November also hit the highest level in 20 years. Retail sales and consumer confidence were both up last month. Even the stock market has bounced back, with the Dow Jones Industrial Average closing above 10,000 on Thursday for the first time in more than a year and a half.
“There’s no question the economy right now is improving and, chances are, it will look even better in a year’s time,” says Jim O’Sullivan, U.S. economist at UBS Warburg, the investment bank.
That’s welcome news for Bush, whose father lost his bid for reelection in part because voters were dissatisfied with the sluggish pace of the economy during the final years of his term. But has the current climate improved enough to help this president avoid his father’s fate? Economists say the numbers are in Bush’s favor–with one exception. More than eight million Americans remain unemployed–and nearly one-quarter of them have been looking for work for six months or longer. “The jobs data–especially the unemployment rate–is the one economic variable that matters more than any other for a president running for re-election,” says Henry Willmore, chief U.S. economist at Barclays. “But I think the news there is better than people realize.”
Willmore notes that the unemployment rate has already dropped by half-a-percent in the past six months to 5.9 percent in November. And both companies and consumers tell pollsters that they are increasingly confident that more new jobs will soon be added. “This is the equivalent of late 1992, when the job market really started turning after the recession,” says O’Sullivan. “At the time, under George Bush Sr., it wasn’t appreciated because the better numbers only showed up in the payroll data when it was revised later. This time, it is happening a year earlier in the election cycle so there’s more time for the improvements to be fully appreciated before the election.”
Bush has been quick to take credit for the economic improvements, citing his economic policies–in particular, his tax cuts–as playing a big part in the recovery. And there’s no doubt that the White House has pulled out all the stops to bring the country out of recession. “This is the most stimulus we have ever seen in reaction to a recession,” says Anthony Chan, chief economist at Banc One Investment Advisors. “The policy reaction was met by further stimulus in the private sector and there you have a formula for economic recovery.”
The Federal Reserve has also played a role by keeping the federal funds rate down–the rate at which banks borrow from each other. At 1 percent, it’s at its lowest level in 45 years. That has prompted banks to offer lower-interest loans and credit card rates to consumers, sparking consumer spending. Automakers are offering zero-percent interest, no-money-down car loans, prompting car buyers. And historically low mortgage rates have kept the housing market booming.
Many voters will likely credit Bush, says Chan. “We attribute a huge part of what the economy is doing at the time to the President,” says Chan, who has examined trends in economic growth during presidential terms. He has found that that the length of the recession matters less to voters during a presidential election than when the recession ends–during the third or fourth year of a term. “At this point, it is hard to plug in the forecast and not come up with a fairly substantial Republican victory,” says Cary Leahy, senior economist at Deutsche Bank.
Still, Leahy cautions says there remains a 20 percent chance the economic recovery could get short-circuited–if consumer spending levels off or decreases next year, for example, or if companies hold off on increasing inventories and adding more workers. Just 57,000 new jobs were added during November–fewer than most economists had predicted. Meanwhile, jobless claims remain higher than expected, with nearly 400,000 Americans filing new claims last week.
And that has some voters frustrated. “It’s still a jobless recovery–the jobs aren’t coming quickly, and those that are coming tend to be low-paying,” says Matt Yarbrough, a 34-year-old computer programmer in St. Louis, Mo., who is not registered with either major political party.
For Bush to win next year, he will need support from voters like Murray and Yarbrough, who are among the estimated 35 percent of the country’s total electorate unaligned with one of the two major parties. The economy is consistently ranked as one of the top issues among the group, says Jacqueline Sallit, co-founder of the Committee for a Unified Independent Party Inc., a nonprofit political center aimed at uniting independent voters. But she adds that many independent voters she’s spoken with aren’t yet convinced, as Murray is, that their lives have improved under Bush. “I don’t think ordinary people look at the economic numbers. All this positive stuff that has been coming through in the economic indicators hasn’t translated into jobs yet–that’s a bottom line issue,” she says.
Independent Adam J. Smith, 37, has another bottom-line issue: the federal deficit. Under Bush, the government’s budget has gone from a surplus of $236 billion to a record deficit of about $375 billion. “Given that this recovery is in combination with a record deficit, that concerns me more than the month-to-month economic numbers,” Smith says.
On Friday, the Commerce Department announced that the trade deficit had also widened, to $41.8 billion in October. “The federal government has used an almost astonishing amount of economic resources in the last three years,” says Mark Zandi, chief economist and co-founder of Economy.com. “There is a bill to be paid for this [stimulus], we just won’t have to pay it yet– not in the first term and maybe not even in second term. But some president in the not-too-distant future has a lot of work to do.”
Still, that’s years down the road. For now, Bush and his Democratic rivals are thinking about next November–and how the numbers will look then.
